I enjoyed hearing @MehrsaBaradaran and others discuss strategies for banking the unbanked during the recent house hearing. But I want to push back against something Mehrsa said then.
She said, "We give banks a charter, and they have a monopoly on payments and financial transactions and credit." With all due respect to Mehrsa, this is abusing the plain meaning of terms.
To refer just to Wikipedia's definition (the first definition that comes up on Google) "A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity."
Besides other suppliers of payment services, there are over 5000 commercial banks and savings institutions in the U.S., and about the same number of credit unions. If that makes the U.S. payments industry a "monopoly," what industry could not be described so?
Yes, banks are "privileged" in that they depend on charters. But this is not so different from any business license. The identification of "chartered company" with "monopoly" is anachronistic: over two centuries ago, the two things were synonymous. That's no longer true.
Now if you want examples of real, honest-to-goodness monopolies in both the 18th century and modern economists' sense of the term, here are two: the Federal Reserve System, and the U.S. Postal Service. The one enjoys a monopoly of many payments products and services today.
The other enjoys the exclusive right to deliver 1st class mail. Mehrsa's proposal would extend the privileges enjoyed by both to include that of providing retail deposit accounts to ordinary citizens. Together, they would indeed be competing with banks,...
But it certainly isn't correct to say that by so doing they'd be busting a supposed bankers' "monopoly." Were the question one of eliminating monopoly privileges, the solution would have to be one of enhancing private firms' opportunities to compete w/ the Fed and USPS, ...
...not the other way around!
By making these points I don't pretend to be offering an argument against either Fed retail or postal savings accounts. I _am_ arguing against abusing the term "monopoly" to make a specious argument in favor of either.
By making these points I don't pretend to be offering an argument against either Fed retail or postal savings accounts. I _am_ arguing against abusing the term "monopoly" to make a specious argument in favor of either.
Nor do I want to seem to pick on Mehrsa's testimony. Believe me, I might complain a lot more about some of the other witnesses' statements. And I may yet do so!
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